However, two other choices are eroding the pricing built into LTCI premiums: 1) home health care; and 2) communitybased living delivered through Assisted Living Facilities (ALFs). All over the United States, and especially in warmweather climates, new ALFs are being opened at a staggering rate. Many of these facilities feature private living quarters, recreational amenities and active senior communities, along with restaurantlike meals and full medical services. Some ALFs even offer collegelevel continuing education courses and golf course privileges. Elderly Americans with health problems are flocking to be admitted to ALFs, and they expect their LTCI programs to foot the bills.

To qualify for LTCI benefits, a common requirement is certification that a person needs assistance with two or more Activities of Daily Living (ADLs) after a waiting period. If an LTCI program agrees to cover any type of treatment (nursing home, ALF or home care) under this requirement, you can predict with near certainty that premiums for the program will increase. The deterrent to filing claims just isn't there.

The original design of LTCI was that premiums would stay level, because that is what retired people can budget. But in a world of constantly rising LTCI premiums, the design may be fundamentally flawed. Also, rising costs expose what may be an even greater problem–lack of flexibility. In droves, elderly people are complaining that once LTCI premiums become unaffordable, they have no choice except to cancel coverage, just when they need protection the most. The basic compact underlying the product–"buy it young and use it later"–feels betrayed.

Salvaging Sales Momentum

Premium uncertainty, combined with product inflexibility, makes LTCI a harder product to sell. After you've sold it, you will face service problems and loss of client goodwill with each premium increase.

The insurance industry is doing its best to salvage LTCI's sales momentum, but the direction in which some companies are heading may be wrong. Their solution is to unbundle coverage, so that consumers can choose policies that cover nursing homes only, ALFs only, or home care only. For example, Blue Cross has introduced a plan, LTC blue, that lets the insured mix different levels of coverage such as 100% for nursing homes, 75% for ALFs, and 50% for home care. (In this example, if the maximum monthly benefit is $4,000 for a nursing home, it would be $3,000 for an ALF and $2,000 for home care.) LTC blue's "Nursing Home Only" option offers a 0% benefit for ALFs or home care.

The problem with this approach is obvious to anyone who has ever participated in the intricate process of placing an elderly person in an LTC program. It can involve months of coordination among medical and mental health professionals, social services organizations, family members, and financial advisors. The placement ultimately may depend on compatibility and availability–where the elderly person feels most comfortable among affordable programs with capacity. Do you want to be the financial advisor who recommends a 0% home care benefit for a client who ultimately (years from now) needs and wants home care instead of a nursing home? If so, make sure you have E&O coverage.

Where the LTCI market stands today, and the direction (described above) in which some companies are heading, creates a nightmare of complexity and responsibility for financial advisors. But also emerging is an attractive alternative that can solve virtually all these problems in one transaction.

Prepaying LTC Costs

This solution is to prepay longterm care (LTC) costs with a onetime premium, while bundling guaranteed lifetime coverage into life insurance. In one package, for one payment, the client gets:

• Life insurance coverage
• Longterm care protection
• Taxdeferred accumulation of cash value
• Access to cash value (if needed) through withdrawals

New York Life is promoting "accelerated death benefits" for longterm care with its Asset Preserver product, available for single premiums as low as $10,000. At the time of purchase, the client can select an accelerated death benefit payout period of 24 months, 36 months or 48 months. Then, longterm care accelerated benefits are triggered upon either a "chronic illness" (two or more ADLs) or terminal illness. In the case of a chronic illness, the net death benefit is paid out gradually over the period selected, after a 90day waiting period, and all levels of care (nursing home, ALF or home care) are covered. In the case of a terminal illness, the death benefit can be accelerated into a lumpsum.

New York Life is developing Asset Preserver in a marketing niche it calls "blended products." The concept makes great sense for protecting estates, because estates are vulnerable to both death and LTC–and it is impossible to predict which will occur first.

Costs and Leverage

The financial press has already started to criticize the "blended product" concept, claiming that it's more expensive for clients than buying life insurance and LTCI separately. But this analysis misses several salient points, which are as follows:

• Singlepremium life insurance leverages the client's own assets to provide blended protection (life and LTC). Younger clients get more leverage than older clients, and women get more leverage than men (because women live longer).
• Whichever side of the blended protection you don't use (life or LTC) winds up costing very little at all. In Asset Preserver and several competitive products, there is no extra charge for the accelerated death benefit. (The cost is built into standard premiums.) So, if you never need LTC, you still have your death benefit intact, and the LTC protection becomes economical.
• Your LTC premiums won't increase, because you have already paid the premium and coverage terms are written into the contract. Also, your death benefit is guaranteed to stay level for life–which means LTC protection is constant. (In some contracts, a maximum fixed percentage of the death benefit can be accelerated.)
• Insurance companies have incentive to write "blended policies," because a significant deterrent factor is built into them. To understand it, imagine a family that must fund LTC for grandma at age 80, when grandma has Alzheimer's and also a $200,000 death benefit that can be accelerated. The family can help grandma decide to either: 1) keep the death benefit intact for heirs and fund the LTC outofpocket; or 2) accelerate the benefit and apply it to LTC. Since it's the family's future benefit that is being spent on grandma's ALF, you can bet it will be spent wisely.

One attraction of "blended" singlepay policies is in the leverage they offer older women. Women are statistically more likely to need LTC than men because they live longer and are less likely to have caregivers at home. To illustrate this leverage, imagine a 70year old woman who puts a $100,000 single premium into another attractive blended product–Liberty Life's Estate Maximizer II. Her leverage factor is 1.70, which means every dollar of single premium immediately earns $1.70 of death benefit. Since this product accelerates up to 90% of death benefit, $100,000 of premium would leverage into $153,000 of LTC coverage–enough to pay for about 23 years in a nursing home or 34 years in an ALF. (For a male age 70, the same premium would buy a bit less LTC coverage, about $140,000.)

Liberty Life will write this product up to age 85 for premiums as low as $10,000. A minimum interest rate guarantee on cash value of 5% (gross) helps to cover insurance costs or increase cash value, and agents can earn a 5% commission on the single premium through age 80. The product (with accelerated death benefit) is available in all states except New York.

Older Women = Great Prospects

How many couples age 65+ have you offered life insurance in the past month? How many older women? Our country is just full of older, active women who are in great health, have never owned much life insurance, and wouldn't even open the door to talk to you about it. But they are very concerned about the rising cost of LTCI.

You can get in the door (and more) with blended products like New York Life's Asset Preserver and Liberty Life's Estate Maximizer II. Other singlepay blended products worth considering include Lincoln National's Moneyguard and MassMutual's UltraCare Life.

Stay flexible in your thinking. When clients have problems with rising LTCI premiums (and they will for years to come) be the solution.